What Does One Do When They Don't Have Lots Of "Fluid" Capital? - Franchise Opportunity

As I look for opportunities everywhere I can, I always gravitate back to franchises. Perhaps it's because in a lot of cases brand recognition is already established and the marketing is somewhat built into the brand name.

A number of franchises require an applicant to have a great deal of fluid capital, or unencumbered funds, sometimes in the form of $100 - 500K. I'm not broke, but I don't have that kind of money laying around.

Is it safe to say that a lot of people have investors that help them with startup costs? I would think in the case of most people they are entering into pretty serious partnerships for that kind of money, which kind of takes away from the earning potential in my opinion.

Are there ways to demonstrate to franchisers that the franchisee could be successful by securing a business loan rather than needing to have that kind of money at the table?

mrhelpful | Contributor |
12/21/2009 - 8:14 pm

FranchiseKing | Guest Blogger |
1/7/2010 - 11:42 am

Hi,
If I may be a tad blunt, here;
I help folks find the right opportunities in franchising for them. In my 9 years of doing it, I have never had a person buy a franchise that did not have skin in the game (Money)
Franchisors don't want investor-backed franchisees, in general. if you don't have enough of your own money up-front, (With additional reserves for living expenses etc) it could be pretty tough to do this.
Keep saving money!
Joel Libava

phanio | Contributor |
12/28/2009 - 1:12 pm

Two stories:
1) Several years ago, we had a person who wanted to open an IHOP in his neighborhood. Like you, he did not have the liquid capital to meet the requirements. What he did was get out into our community and start to network. He was able to put together a group of doctors who provided (on paper only) the liquid capital he needed. Once he obtained the store - he worked very hard at making it a success. Several years later, he dicided that he wanted to open a second location - this time he was able to do it on his own. Not becuase he had the liquid cash to meet the requirements (which he now did but did not need) but because he made a name for himself with the franchisor. Might be something to think about. Use other peoples money to get the first store - even though it may not be that profitable to you personally as you have to share profits - but as you move forward - you can do so on your own.
2) After this person got his franchise up and running, one of his managers came to me wanting to get his own store. This time, instead of tapping the same doctor group, we found a prominent person in our community that personally owned several separate hotel franchises. This person backed this manager for his own store.
There are always ways - they just might not be the exact way you want them to be - but in the end they can still return the same results.
As a side note: The SBA loves franchises - as they know that you will not be in business for yourself and that should you default - the franchisor may make the lender whole. Might look into this if you can obtain 10% to 20% of personal equity.
Lastly, most franchisors have their own financing avenues - could ask the franchisor if they can provide name of companies to get you the funding you need.

ChristineL | Former Moderator |
12/21/2009 - 11:40 am

mrhelpful | Contributor |
12/18/2009 - 8:18 pm

I'd tend to agree that most businesses do not have this level of free capital on start up - in fact most businesses need to borrow some of their strat up costs and arrange lines of credit to sustain them during the inital growth phase.
Especially in these economic conditions I'd imagine the number of people with 100K+ sitting in a bank account would be pretty low.
Provided you can establish that you have access to sufficient capital by way of lines of credit, this should be sufficient I would imagine.

NewBizResearch | Performer |
12/19/2009 - 6:04 am

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I'd tend to agree that most businesses do not have this level of free capital on start up - in fact most businesses need to borrow some of their strat up costs and arrange lines of credit to sustain them during the inital growth phase.
Especially in these economic conditions I'd imagine the number of people with 100K+ sitting in a bank account would be pretty low.
Provided you can establish that you have access to sufficient capital by way of lines of credit, this should be sufficient I would imagine.

I would've thought that too. However, when I contacted a couple of companies to consider that point, they were generally of the same position - you must have fluid capital to cover unforseen costs that could be above the amount of the business loan.
I wonder how people get started in any economy, especially this one.

bizdev | Creator |
12/19/2009 - 10:28 am

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I would've thought that too. However, when I contacted a couple of companies to consider that point, they were generally of the same position - you must have fluid capital to cover unforseen costs that could be above the amount of the business loan. I wonder how people get started in any economy, especially this one.

As a former franchise owner I can tell you that you do need to come to the table with your own infusion of cash. Even if you apply for a loan to purchase the franchise, you still need to have at least 20% of the cash needs coming from you.
There are plenty of franchises that don't require the high fluid capital (over $100K) availability. You may need to dig deeper to find the less expensive franchises, but they are out there. Check out the Franchise Handbook magazine and look beyond the glossy ads. The lesser known franchises are more affordable.